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Stanford project promises more accurate measure of poverty in U.S.

By Adam Gorlick

David Grusky

They're single mothers who can't afford childcare and the elderly who are unable to pay their medical bills. They're the homeless lined up at city soup kitchens and the unemployed with no prospect of work near their rural homes.

They're America's poor—struggling with different daily hardships and eligible for different types of assistance.

But the official poverty index does not recognize their different needs and their eligibility for different types of aid. The only factors that are considered in calculating the index are income, family size and composition. For a family of one adult and two children to be considered poor in 2007, it must have made less than $16,705. There were no adjustments made for government benefits like tax credits and food stamps or for financial burdens, such as home-heating bills and transportation costs.

The Stanford Center for the Study of Poverty and Inequality is working to present a clearer picture of the poor by regularly calculating and publishing an alternative to the official poverty index, an outdated yardstick developed in 1963. The new Stanford Poverty Count aims to provide an accurate measure of how much poverty there is in the United States.

"The current index is a statistical fabrication that doesn't authentically represent the real economic circumstances of families," said David Grusky, the center's director and member of the advisory board that is developing the new poverty measure, which draws on methods already recommended by the National Academy of Sciences and tested by the U.S. Census Bureau and Bureau of Labor Statistics.

Joined by Barbara Bergmann, professor emeritus of economics at the University of Maryland, and other poverty scholars on the advisory board, Grusky hopes the federal government will scrap the current poverty index and replace it with the Stanford Poverty Count. Meanwhile, the center plans to publish its findings using the alternative measure beginning in 2009.

By taking into account 12 factors not considered in the current poverty index—including tax credits and payments, federal benefits for housing and food, out-of-pocket health costs and childcare needs—the Stanford Poverty Count will more accurately measure which families are poor and whether poverty is increasing or declining, Grusky said.

With that information, government agencies will be able to craft policies and programs that best help those in need—a task that Grusky said is especially important as the country faces an economic downturn.

"The objective is to create a more accurate measure, not one that necessarily yields a higher poverty count," Grusky said. "If you don't have a good measure of poverty, you are operating in the dark and can't make good policy decisions."

The current index is flawed because it assumes the only way poverty can be alleviated is by increasing a family's earnings.

"Even if billions of additional dollars were spent annually by the government on healthcare, childcare or housing subsidies, not a single family would change their poverty status under the poverty estimate as it is currently calculated," Grusky said.

The current poverty index was developed nearly five decades ago. To draw a line between the poor and the non-poor, the cost of a basic food budget for a family of four was multiplied by three. After adjustment for family size, families whose pre-tax income fell below the poverty line were counted as poor. Since its creation, the index has only been updated to reflect inflation.

To illustrate the problems with the current poverty index, the advisory board uses a model of two families with cash incomes of $20,000. One family needs to pay $6,000 a year for childcare, while the other benefits from care given by a relative or a government program. The first family is forced to maintain a lower living standard than the second because it must spend $6,000 of its $20,000 income on childcare. But the two families are treated identically by the official measure of poverty.

The Stanford Poverty Count would calculate the childcare costs, and show that the family saddled with the $6,000 bill is financially worse off than the other.

Stanford has given the project $200,000 to cover initial research expenditures. The center needs another $600,000 to cover additional costs and make it possible to calculate and publish the Stanford Poverty Count on a regular basis.